Louisiana Board of Tax Appeals Rules That Chemicals Qualify for Pollution Control Sales Tax Exclusion
The Louisiana Board of Tax Appeals issued an important ruling relating to pollution control devices or systems. For at least two decades, the relevant agencies did not consider chemicals to meet the definition of a pollution control device or system and thus chemicals did not qualify for the applicable exclusion from sales tax. However, the decision, issued on April 14, 2021, found that chemicals used for pollution control, which otherwise meet the terms of the exclusion, could qualify and provide a refund for sales taxes paid.
For sales tax purposes, the term “sale at retail” does not include the sale of a "pollution control device or system." The statutory definition is “any tangible personal property approved by the Department of Revenue and the Department of Environmental Quality and sold or leased and used or intended for the purpose of eliminating, preventing, treating, or reducing the volume or toxicity or potential hazards of industrial pollution of air, water, groundwater, noise, solid waste, or hazardous waste in the state of Louisiana.” La. R.S. 47:301(10)(l). The regulatory definition is similar but with a relevant difference: “any one or more pieces of tangible personal property which is intended and installed.” LAC 61:I.4302, emphasis supplied.
Monsanto Company operates a facility in Luling, Louisiana (the Luling Facility). Like many industrial facilities in Louisiana, Monsanto utilizes sodium hydroxide, or caustic, to neutralize and control the pH of acidic waste streams. Monsanto uses caustic in its air scrubbers, which are pollution control devices designed to neutralize acid gases. In fact, Monsanto’s air permit mandates that caustic be used in this manner. Monsanto also uses caustic to control the pH of its wastewater prior to discharge and deepwell injection. Again, Monsanto’s discharge and injection permits mandate that the pH be maintained above or within specific levels prior to discharge or injection.
The caustic is received at the Luling Facility in liquid form and placed it into storage tanks. From this central location, the caustic is hard piped to the various scrubbers, tanks, and other equipment. Sensors in each unit determine the pH of the materials and caustic is automatically pumped to the unit to adjust the pH when and as needed.
During an internal tax review, it was determined that Monsanto had paid over $3.9 million in sales taxes on its caustic purchases between 2012 and 2014. Monsanto applied for a sales tax refund. However, when the Louisiana Department of Environmental Quality (LDEQ) received Monsanto’s application for review, it stated that it “does not consider chemicals as parts of pollution control systems … because they do not constitute ‘tangible personal property … installed.’” Based on this, the Department of Revenue (Revenue) denied the sale tax refund and Monsanto appealed to the Board of Tax Appeal (BTA).
In its Order with Written Reasons, the BTA found that Monsanto “is entitled to the claimed refund.” The BTA, noting that it must construe exclusions in favor of the taxpayer and that it does not give deference to LDEQ’s interpretation of the law, disagreed with LDEQ’s “interpretation of the law related to the meaning of ‘installed.’” The term ‘installed’ is not defined in the statute, regulation, or any guidance from LDEQ or Revenue. Finding that the ordinary meaning of the word ‘installed’ is “to set up for use or service,” the BTA found that Monsanto installs the caustic as it sets it up in the storage tanks, uses caustic to neutralize acidic waste, and does so for use in its pollution control scheme. Therefore, Monsanto’s use of the caustic is “within a common and approved definition of 'install.’”
Taxpayers still have a narrow window in which to seek refunds even though the exclusion was partially suspended from July 1, 2016 through June 2018 and fully suspended between July 2018 until 2025. Taxpayers that have paid sales taxes on chemicals, such as caustic, and which otherwise meet the terms of the exclusion have two opportunities to claim a refund: taxpayers may be entitled to a refund for periods from December 2017 through June 30, 2018 if claimed before December 31, 2021 and taxpayers currently under state audit may be able to claim additional periods prior to December 1, 2017 if the audit is still open.